As the summer draws to a close and children go back to school, it very much looks like the first week of September will set us up for the rest of the month. We have a packed calendar of risk events and trading opportunities including central bank meetings, significant economic data releases and political risks, which in the UK’s case means the next phase in the Brexit house of cards.
PM Johnson escalated the civil war in his own party over the weekend , threatening to strip Conservative rebels of their party membership should they fail to back him in a key Brexit vote on Tuesday. The move on balance increases the likelihood of new elections.
With radical measures by the government to disrupt any legislative efforts being rumoured last week as well, and the Halloween deadline brought that much closer by the proroguing of Parliament, this looks likely to go to the brink in a game of (political) chicken. That's not forgetting how EU politics has historically operated with last-minute, late night decisions the norm in recent times.
Tariffs and key data in the US will be a major focus, even though the week is shortened by Labor Day on Monday. President Trump’s next round of tariffs on $110 billion worth of imports took effect yesterday as China commenced with stage one of retaliatory tariffs on $75 billion of US goods, raising the stakes in the trade war and the likelihood of further adverse repercussions on global growth. Additional tariffs are slated on October 1st and in December so random policy risk will hang over markets, no doubt via tweets.
The US labour market has slowed in recent months so Friday’s non-farm payroll report and specifically employment growth will be closely monitored. This year’s average of 165k is still ahead of the monthly pace needed to keep the unemployment rate steady but is a notable deceleration from the 200k+ monthly gains over the past 8 years. Wage growth may also slow from its peak of 3.4% back in February.
The central banks in Australia, Canada and Sweden reveal their latest monetary policy decisions and even though none of the three are expected to cut interest rates this week, the general trend is still towards more easing among G10 central banks.
Markets are pricing in nearly a 70% chance of a cut in rates by the RBA at its next meeting in October. A key signal around the Governor’s Statement will be if he continues with the wording ‘ease monetary policy further if needed’. Concerns about global developments offset the positive job creation in July; remember that labour markets are a key consideration to the RBA.
The Bank of Canada has so far not felt the need to follow this global dovish pivot but trade tensions, the external growth slowdown and the softening tone to US data indicate that momentum may start to slow. However, a potential language adjustment and dovish nod may not come until October’s full forecast reassessment.
Here are the key events on the calendar across global markets this week:
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